Poor harvest due to lower prices
Golden Agri’s 2Q13 core net profit fell by 49% yoy as weaker selling prices for palm products, lower FFB production and higher estate costs more than offset the better showing from its China agribusiness.
At 48% of our full-year forecast and 40% of consensus, we consider 1H13 core net profit to be below consensus but broadly in line with our expectation as we project a better 2H driven by higher production. Our net profit forecasts and target price of S$0.56 (14x CY14 P/E, the historical average) remain intact. We maintain our Neutral rating.
2Q13 core net profit fell by 49% yoy, mainly due to lower selling prices for its palm products, weaker production and higher production costs. On a qoq basis, the weaker earnings were partly due to the absence of gains of around US$20m-25m from the sale of 120k tonnes of CPO stocks. We are surprised that 2Q FFB production fell 11% yoy and 8% qoq which is against the normal trend as 2Q production is typically higher than 1Q. We gathered that this was due to unfavourable weather in some parts of Indonesia in addition to palm trees entering their lower production cycle following the bumper harvest in 2H12. Its China agribusiness reported a higher EBITDA of US$11m in 2Q13 vs. US$9m in 1Q13 due to the timely purchase of soybeans for its crushing division in China.
Management expects FFB production to be stronger in 2H but indicated that full-year production may end up closer to the low end of its 5-10% output growth guidance. 2Q production cost per tonne for palm products rose by 26% yoy and 20% qoq to US$387 per tonne due to higher labour costs and fertiliser inputs. The group pares down its palm oil stocks further. At end-June 13, its palm oil stocks totalled 342k tonnes, down from 398k tonnes as at end-Mar 13 and 435k tonnes as at end-Jun 12.
Keen to expand
The group still plans to expand its estates by 35k-40k ha in 2013 and raise its refining capacity in Indonesia. It maintains its capex plan of US$550m for 2013..
Publish date: 02/08/13